The term 'Private Banking' is included in the Banking edition of the Financial Dictionary. Get your copy on Amazon in Kindle, Paperback or Audio edition. Choose your edition here...
Private Banking refers to an intensely personal form of banking and related financial services which a bank traditionally delivers to its HNWI high net worth individual and UHNW ultra high net worth individual clients. In terms of wealth management, it is these two principal types of banking customers who have amassed significantly greater wealth than the common man or woman. This means that they can gain easy access to a greater range of traditional and alternative banking solutions and creative high-yielding investments than the typical banking customer can. Such private banks make huge efforts to effectively match up these types of high value customers with the best possible investment options and banking solutions.
Private banking goes far beyond managing investments anymore. In fact, these financial institutions provide a veritable wealth of investment-related advice and consulting as well. The goal is to offer comprehensive solutions for the clients’ whole financial picture. This means that besides growing and protecting the assets in the present, they are similarly interested in offering creative and legal strategies for future financing needs, offering retirement strategies, and bequeathing wealth which is not tax-encumbered to the next generations of the family.
It is possible for more ordinary individuals who possess $50,000 in liquid net worth to engage in a form of private banking. Yet there are many more exclusive (mostly Swiss) private banks that only take clients who boast a minimum $500,000 in investable assets. This represents a large sum of wealth that permits such families and private parties to become involved in lucrative alternative investments like speculative real estate and hedge funds. This amount of wealth is considered to be essential for avoiding liquidity issues with investments. In today’s banking world, Credit Suisse, UBS, HSBC, Morgan Stanley, and Bank of America Merrill Lunch are all well-known and -regarded examples of such private banking institutions.
Among the most notorious and important advantages to private banking are its legendary standards of anonymity and privacy. These institutions go way above and beyond the call of duty to maintain anonymous transactions for their clients. In fact, these types of elite banks usually deliver HNWIs and UHNWs with specially designed solutions about which they keep quiet in order to stop an important customer from going over to a major competing institution. This long-standing tradition and culture of privacy delivers the additional advantage of bringing in newer customers who value the exclusive treatment.
It is this legendary standard of banking and financial management services that appeal to HNWI’s and UHNW’s. They will all receive their own special and specific relationship or account manager. He or she will then strive to create a specifically crafted personalized approach to managing their particularly unique assets. It permits the clients to interface personally with the bank’s management if they need to urgently.
In fact the HNWIs and UHNWs often obtain discounted pricing at the major private banks because their considerable assets are a prize to be competed for and gained. As an example, clients who run exporting and importing companies could obtain an advantageous rate of foreign exchange from their private banking institution. The banks will similarly endeavor to deliver superior outperforming returns on investments as well. This is in their own best interest since such clients can easily leverage down on their vast resources in response to great private banking returns. A UHNW individual might receive limited access to a best in class hedge fund because of their connection to a certain private bank which has a relationship with the hedge fund directly and personally.
Thanks to the big picture-altering Global Financial Crisis of 2008, private banks have suffered the wrath of the financial regulators around the developed banking world. A new highly restrictive regulatory regime has arisen to deliver a punishing level of accountability and higher than anticipated transparency requirements. As an example, the licensing requirements nowadays are far stricter for the professionals working at the private banks than they used to be. This ensures that the clients receive appropriate types of advice for managing their vast financial resources and empires.